SEBI wants to stick to the notion that PMS product is purely for high net worth individuals and not for retail investors, who, over the years, have build a portfolio strong enough to invest in PMS services.
PMS AIF World
Market regulator Securities and Exchange Board of India (SEBI) on November 20 doubled the minimum investment in PMS funds to Rs 50 lakh effective from January 1, 2020.
While the doubling of ticket size may seem discouraging to some, the rule of 72 shows that the increase is just in line with the cost of inflation.
Also, it must be noted that benchmark indices have more than doubled since the last time SEBI revised the ticket size for PMS investing. The market regulator in January 2012 bumped up the minimum investment in PMS products to Rs 25 lakh from Rs 5 lakh earlier. During that time Sensex was trading at 18,000 levels. It is now trading above 40,000. Hence, the increase in ticket size is also in line with the growth of the market.
We believe the doubling of minimum investment was done with the view of capturing the high risk PMS products present. SEBI wants to stick to the notion that PMS product is purely for high net worth individuals and not for retail investors, who, over the years, have build a portfolio strong enough to invest in PMS services.
Many young investors, over a period of 5-7 years, build a corpus of Rs 25-35 lakh through monthly SIPs, thanks to campaigns such as 'Mutual Funds Sahi Hai'. And with the rise in popularity of PMS products, these investors put their entire corpus in one PMS product. This could be fatal to their portfolio health as PMS investing is highly risky and can wipe out a significant portion of their corpus.
Also, the doubling of minimum ticket size will also instigate much more research into different offerings which is always positive. Understanding investors risk profile, portfolio facts, investors' time horizon will become all the more important before taking the PMS route.
It will also benefit well-known, established PMS players who have a proven track record, which, in turn, will further minimise risk for investors.On the flip side, small players venturing into PMS offering will suffer tremendously as investors turn extra cautious while investing in the asset class.
Investors mostly increase their share of wallet with an investment product/PMS over a period of time. So, the increase in min ticket of PMS by 100 percent is not good for new/smaller PMS players.
It will also lead to more flows to largecap oriented, or multicap portfolios, as they are seen as relatively less risky, compared to pure mid, smallcap ones, and now ticket size being large enough, deploying 50 lakh in a concentrated mid, smallcap portfolio, won't be easy for many.
(PMS AIF World is an analytics backed wealth management firm)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.